High Interest Rates Could Have Been Avoided if The Fed Acted Sooner, Says Mohamed El-Erian

Mohamed El Erian
Mohamed El Erian

Higher interest rates that soar faster and last longer, in addition to the increased risk of an economic recession, could have been avoided if the Federal Reserve had acted sooner to tame inflation, Mohamed El-Erian said on Wednesday.

The top economist’s comments came after the Fed on Wednesday raised interest rates by another 0.75 percentage points for the third time in a row to tame rising prices. Higher interest rates result in less borrowing, consequently cooling demand throughout the economy, but the move risks slowing growth so much the economy could fall into a recession.

“Rates that go higher, faster and stay there longer” and the elevated risk of a recession could have been avoided had the Fed responded in a timely fashion to cool inflation, El-Erian wrote in a tweet on Wednesday after the Fed’s rate decision announcement.

The Fed has hiked rates five times this year, with more significant increases taking place faster over the months as it races to curb inflation, which hit a 40-year high of 9.1% in June. Inflation cooled in the months following but was still high at 8.3% in August.